Can the interest incurred on financing be submitted under "cost impact" due to the government's delay. Normally interest is an unallowable cost (FAR 31.205-20)
No, thegeneral rule is interest costs are unallowable.
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Discussion. The key is whether a claim has been submitted. Why? There are two situations where interest is authorized under a statute: the Prompt Payment Act (PPA)(Chapter 39 of Title 39, United States Codeand FAR 32.9) and Contract Disputes Act (CDA) (FAR 33.2 and the Disputes Clause at 52.233-1). Here, the CDA could be applicable if the contractor has submitted a claim. If the contractor has submitted a claim he could be allowed interest if the claim is approved. The rules for the interest periods are set forth in the FAR cite supra. Here are some previously answered AAPs regarding this topic.
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Again, the key is whether or not a claim has been submitted under the CDA. This"triggers" interest allowability to a limited extent. Here are a couple of examples. In Bell v. US the court held that interest costs incurred as a result of borrowing to finance a constructive change could be included in an equitable adjustment. Joseph Bell v. United States, 186 Ct. Cl. 189, 404 F.2d 975 (1968). Interest on borrowings is properly included in the adjustment only if the interest was actually paid to an outside entity. Oxford Corp., ASBCA 12298, 69-2BCA 7871. Because there are these narrow exceptions I recommend you contact your general counsel to get a legal response.